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What are some of the risks inside an Australian expats superannuation fund?

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We often hear Australian expats taking the age-old ‘set and forget’ approach when it comes to their superannuation. Here we wanted to explore some of the risks you may be exposed to in an Australian expats superannuation fund.

Generally, the superannuation can’t be touched for years. With this in mind, we are often asked why should expats bother looking into it before they jet off or even while they are abroad? A recent article out of the Australian Financial Review (AFR) has placed the spotlight on how our superannuation is invested and potentially exposing expats to investment risk that they may not have been aware of.

It points out the lack of transparency that members face when it comes to knowing where their super is invested and what the actual level of risk members take on by being in specific investment option (i.e. Balanced, Growth and High Growth).

It points out the lack of transparency that members face when it comes to knowing where their super is invested and what the actual level of risk members take on by being in specific investment option (i.e. Balanced, Growth and High Growth).

The low-interest rate environment has created a situation where super funds are investing in unlisted investments to increase their potential returns for members. Unfortunately, when it comes to these types of alternative assets, there can be huge discrepancies in classifications. The view of these super funds is that AAA grade government and corporate bonds don’t offer high enough returns and therefore they’ve switched into higher yielding but much riskier assets such as unlisted property and infrastructure.

According to the AFR, industry insiders confirm that this isn’t just an accidental oversight on the administration side but in fact, there are considerable incentives for investment managers of super funds to adopt this approach. This is very alarming when we consider that there is roughly AUD$2.5 trillion in our superannuation system.

What Does This Really Mean for An Australian Expats Superannuation Fund?

An Australian expat investing in a balanced fund (which, depending on the research firm, is usually defined as between 60 and 80 percent of growth assets), could have more than 90 percent of their super savings invested in riskier assets, without them having the faintest idea of how much risk is being taken.

Furthermore, due to the lack of reporting it can make it increasingly difficult to compare super funds, it would be like comparing apples and oranges.

If a defensive option is outperforming another super fund’s growth option, there could be some serious discrepancies in the transparency of where that super fund is actually making investments for its members.

Australian expats who leave their superannuation in good faith to their ‘reliable’ industry super fund need to be more proactive in how and where their super is being invested and whether it is in line with their retirement goals or investment time horizon.

 Is the Insurance Cover Valid Inside an Australian Expats Superannuation Fund?

Another area Australian expats need to be aware of is the default cover they hold in their super funds. Recent cases have shown that 65% of super funds default insurance cover, and won’t cover you once you are overseas for an extended period of time, often over 90 days. This is of great concern as there is potentially an expat could pay many years worth of premiums while overseas only to find out that their insurance was invalidated in the first few months abroad. As a result, thousands of dollars, in wasted premiums, have come out of their super balance due to not being informed about the rules. A staggering number of just over 880,000 Australian expats were recorded at the end of 2016, which would equate to billions of dollars in the superannuation system.

If you want transparency in where your superannuation is invested, it is always best to seek professional advice from  Kofkin Bond & Co. To find out more, email Kofkin Bond & Co on enquiries@kofkinbond.com.au

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